By Ali Sawafta and Raneen Sawafta

NABLUS, West Bank (Reuters) -Israeli forces killed a Palestinian passerby during a raid on a refugee camp in the occupied West Bank on Tuesday that set off a two-hour gunfight with armed fighters, witnesses and the Palestinian health ministry said.

Violence in the West Bank, among territories Israel occupied in the 1967 Middle East war and which Palestinians want as the core of an independent state, has risen sharply during the past year. Israel has intensified its military raids amid a spate of deadly street attacks by Palestinians.

Israeli forces surrounded the house of a wanted Palestinian fighter in the Balata refugee camp in the northern West Bank city of Nablus, triggering clashes with armed Palestinians, residents said.

A 19-year-old man, Faris Hashash, was shot fatally by Israeli forces during the fighting, the health ministry said, and eight more Palestinians were treated for gunshot wounds, including one who was hit in the head, the Palestinian Red Crescent said.

A military statement said Israeli forces spotted a gunman while operating in Balata Camp and fired at him. It added that assailants hurled rocks and explosive devices and shot at the forces, who responded with gunfire.

"Hits were identified," it said.

The military added that it was aware of two minors who were wounded in the fighting, and that it was reviewing the incident.

"The military bombed the house, they damaged it," Husam Sallaj, the uncle of the wanted man, Issam Sallaj, told Reuters. He said his nephew was wounded but not captured.

The wanted man's brother, Suhaib Sullaj, said an Israeli commander rang to demand that Issam turn himself in. "He said, 'we want to bomb the house. If you don't leave, we will kill you, Issam, your mother and sisters, the entire family.'"

The family's house was partly destroyed, its walls charred. Furniture, mattresses and children's toys were seen scattered in one of the rooms. A car parked in one of the narrow, graffiti-covered alleys near the targeted house was torched.

Hamas, the Islamist group which governs blockaded Gaza, mourned the 19-year-old but did not claim him as a member. It said in a statement that "the occupation's crimes will not stop ongoing resistance across the homeland".

Separately, the Israeli military said it had launched a search in the West Bank for suspects after gunmen in a car opened fire on a civilian vehicle before firing on Israeli forces, lightly wounding four soldiers, the military said.

Israel's ambulance service said it treated four people for gunshot and shrapnel wounds and transferred them to hospital.

Photos circulating on social media showed a car pocked with bullet holes on the windshield and passenger side's door.

(Reporting by Ali Sawafta and Raneen Sawafta; Additional reporting by Henriette Chacar; Editing by James Mackenzie, Nick Macfie and Mark Heinrich)